LV men charged in fraud case

Jace Radke

Friday, Aug. 8, 2003 | 11:16 a.m.

Five people, including two Las Vegas attorneys and a former New York lawyer linked to a high-profile FBI secrets-for-sale scandal, have been indicted in connection with a multimillion dollar stock securities scheme.

Las Vegas attorneys Sean Flanagan, 35, and Daniel Chapman, 49, former New York attorney Herbert Jacobi, 63, disbarred Las Vegas lawyer Shawn Hackman, 35, and James Farrell, 54, a stock transfer agent from Salt Lake City, are named in the 64-count indictment.

The indictment alleges more than $12 million was taken by the men through mail fraud, securities fraud, money laundering, racketeering and other crimes, after taking over schemes begun in the early 1990s by two Las Vegas businessmen.

Those two businessmen, Robert Potter and Peter Berney, were already indicted in connection with the scheme and their cases are pending. Berney originally fled the country to avoid criminal charges in the case, but was arrested in Switzerland in early 2000.

The group is alleged to have formed shell corporations and then arranged for the shells to be merged with private companies. The conspirators would then sell securities they held without disclosing the hidden control of the stock, according to the indictment.

In essence the group created a "secret" monopoly of the entire supply of a public companies securities, according to the indictment.

"Corporate records were fabricated and documents were backdated to create the illusion that securities were issued in compliance with federal securities laws," the indictment states.

The indictment further alleges that Farrell's company, Alpha Tech Stock Transfer, was used to transfer the stocks. Among the shell corporations used in the scheme were Tera West Ventures, Travel Masters, Custom Leathers of Las Vegas, Professional Mining Consultants and K-9 Protection Inc.

Farrell was arrested in Salt Lake City this morning and summonses have been issued for the other defendants to appear at an arraignment in U.S. District Court on Sept. 5.

Jacobi and Potter also were key figures in an unrelated high-profile case involving the the sale of top secret documents stolen from the Las Vegas office of the FBI.

Both Potter and Jacobi, who once served as Potter's lawyer, were charged in the FBI documents case in 2001, and later pleaded guilty in New York to receiving stolen FBI records and making false statements to the FBI. As part of his plea agreement, Jacobi resigned from the New York Bar and ended his law practice.

At a press conference today, officials with the Internal Revenue Service said it has 20 cases related to the fraud investigation.

Dan Bogden, U.S. attorney for District of Nevada, said prosecuting securities fraud has become a priority in the state.

"The growth of business in the corporate area has been amazing," Bogden said. "In 2002 alone, we saw 34,000 new corporate filings and while that growth is good for business, there are often one or two bad apples that cause corporate fraud."

The corporate fraud task force, a group of state, local and federal law enforcement agencies, includes the FBI, the U.S. Attorney's Office, the IRS and the U.S. Postal Service. Bogden said the case is one of 20 under investigation or prosecution. The task force investigates false reporting of income, insider trading and securities fraud.